'Garbage Into Gold’ Ponzi Scheme

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[00:00:01] Bob: This week on The Perfect Scam.

[00:00:03] Patrick Howard: The way that this whole thing was put together by the schemers, it was almost like a cult. They would meet in Las Vegas, they would meet, you know, all around the country. There were videos that were taken of the seminars and they literally just whipped people into a frenzy about this idea.

[00:00:21] Robert Livermore: Mantria marketed itself as the next Microsoft, the next Apple. People believed it when they, when they told them that Mantria was going to be the next, you know, multibillion dollar company. 

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[00:00:35] Bob: Welcome back to The Perfect Scam. I'm your host, Bob Sullivan. Everyone loves the notion of getting in on the ground floor of a big new idea, of making a fortune by being an early investor in the next Microsoft or Amazon or Google. And after tough years in the stock market, it's only natural that savers might consider alternative investments. But there is no shortage of snake oil being sold to people looking for high returns, and the investment world is full of alternatives that end badly. Today's story is about a 10-year quest for justice and a Ponzi scheme run by criminals who made sales pitches that would make Bernie Madoff blush… Like this claim – that investors would get rich from technology that could make garbage into….gold?

[00:01:27] (CLIP) Revolutionary clean technology to reduce landfills by 30% and produce high-grade biochar, biocarbon, charcoal, biofuels and bioenergy -- that truly is garbage to gold technology.

 [00:01:42] Patrick Howard: He was a charismatic guy, and he had them in the palm of his hand and, and you know these people just, you know, took him, took him at his word.

[00:01:50] That’s consumer lawyer Patrick Howard

[00:01:53] There was a woman that stands out in my mind. Her mother was sick, and she was trying to help her mom, and so she took out a mortgage on her mom's house to invest and basically couldn't afford the mortgage that she, she took out. She took the entirety of the mortgage, invested it in this and lost it all.

[00:02:10] Bob: Oh my God.

[00:02:11] Yeah.

[00:02:13] Bob: And you heard story after story like this, right?

[00:02:16] Yes, They were all like that.

[00:02:19] Bob: They were all like that. Wayde McKelvy had a silver tongue and would whip up enthusiasm for almost anything at his Speed of Wealth Club meetings. But right when the term green energy had captured investors' imagination around the globe, McKelvy partnered with a company named Mantria and its founder, Troy Wragg. They said Mantria could change the world through a product called Biochar, so-called garbage to gold technology. Investors gobbled up the sales pitch, so did famous world leaders. Here is Bill Clinton talking about Mantria at the 2009 Clinton Global Initiative Meeting.

[00:03:02] (CLIP) Let me announce the first commitment now. I'd like to ask the participants Christina Shay, the Sr. Vice President of General Mills, and Ambassador Elizabeth Bagley, Special Representatives to Global Partnerships from the Department of State, Troy Wragg, the Founder and Chairman and CEO of Mantria Corporation. The commitment is to work together to address the Global Hunger Crisis through innovative partnerships with agriculture. Mantria commits to perform trials that proves that biochar, a carbon negative charcoal, can sequester carbon, improve soil quality with barium, and reduce emissions.

[00:03:41] Bob: How did an unknown land company dealing in vacant lots in Tennessee end up on stage with famous world leaders?

[00:03:49] Yeah, I mean the story of Mantria, it's a fascinating story. So it began here in Philadelphia in 2005.

[00:03:58] Bob: That's Assistant US Attorney, Robert Livermore.

[00:04:02] Robert Livermore: Troy Wragg was a student here at Temple University. And while he was still in school, he wrote a paper on the real estate market in Tennessee. Then when he graduated, he wanted to take those ideas into the real world, and he started a company called Mantria, which was designed to market and sell real estate in Tennessee. Now, when I think about Tennessee, I think about Nashville or Knoxville or Chattanooga which are really vibrant, growing cities, but there are huge swaths of Tennessee which are completely undeveloped, and when I say undeveloped, I'm talking, you know, no cellphone service, undeveloped. I mean forget about water or sewers or electricity, you know things that people need to live, and that's the portions of Tennessee that he was trying to develop. So the land was very, very inexpensive. And what Troy's plan was is to take this land which he could acquire for perhaps $4000 an acre and turn around and sell that for $20,000 an acre to, to speculators. And so that, that was kind of the idea for his company, because if you think about it, that's a pretty good, that's a pretty good markup. That's a pretty good business to be in.

[00:05:23] Bob: A pretty good business, but Troy's timing is terrible.

[00:05:27] Robert Livermore: Do you remember 2008, it's when the market collapsed, the real estate market really got crushed. Early on he was able to sell some land to investors, to speculators, because at that time, if you remember during that time period you could get no doc loans pretty easily. And when those dried up and people couldn't get those, Troy's business at Mantria basically was on the verge of bankruptcy, 'cause they couldn't sell that land to anybody. And so what Troy did then was Troy created his own bank called Mantria Financial in Tennessee. And what Mantria Financial did was that they financed loans for the sale of the real estate on the land that, that Mantria controlled. So rather than selling this for $20,000, they could sell it now for any amount that they wanted. They could sell it for $50,000, $75,000, $100,000, whatever price that they wanted because, because the controlled the ability to do these loans. And by doing so, they could generate these huge profits on paper by selling this land which they were acquiring for $4000 and selling it on paper for $100,000. And it looked to be a very successful growing company. But the truth was they were still losing money hand over fist.

[00:06:46] Bob: Troy's losses keep mounting, and he needs a way out fast. Enter Wayde McKelvy and his Speed of Wealth Investment Club.

[00:06:56] Robert Livermore: Troy needed investors. He needed people to invest in this business, this Mantria Financial business. And he couldn't get any legitimate loans from any banks. So in 2008, a mutual friend of his hooked him up with a, a guy by the name of Wayde McKelvy, and Wayde was from the Denver, Colorado, area. And Wayde ran these investment pools called Speed of Wealth. And at that time, the Speed of Wealth, these investment clubs they had invested in a lot of really high-risk investments; preconstruction type loans, other types of, of consumer loans, col--, collecting on consumer loans, they even had invested in a pink diamond. And the problem for Wayde was that most of these investments were underwater, they were losing money, and the people in his club were not getting, were, they were not happy, 'cause they were afraid that they were going to lose you know they money that had contributed to his club. And so Troy offered Wayde a way out of that, because the clubs could then invest in Mantria and at least on paper gen--, participate in these huge paper returns that Mantria was generating. And it also solved Troy’s capital problem because Wayde had the investors to, to invest in this. And when these investors saw the type of paper returns they were generating, they told their family and friends and other people started investing in, in Mantria through word of mouth. And so that's how everything really got started.

[00:08:41] Bob: It's one of the oldest stories in investing. Take in money from early investors, promise big returns, pay off those early investors with money from later investors until the scheme runs out of gas. That's a classic Ponzi scheme. But McKelvy's sales pitch offers something extra, maybe even more important than big money, a chance to be a part of saving the planet Earth. Mantria is selling a green energy dream. Forget land investments. Mantria tells investors they have a chance to get in on the ground floor of the world's newest energy source.

[00:09:18] Robert Livermore: So again, around this time, 2008, real estate investment had really lost its luster because the market had completely tanked on the real estate side. And if you think back to that time, oil was trading for like $140 a barrel, President Obama was in office, there was a big kind of push towards green energy. And so Troy Wragg is really, he's a, a master marketer, and he's also a master manipulator. And so what he was able to do was kind of take those ideas and green energy ideas and started putting them into the Mantria brand. The first thing that he did was to say that this Mantria Places Community that he was purportedly developing in Tennessee, was going to be the first carbon neutral community and, and kind of the green ideas and, and that's how he kind of branded that and to, and to market that was this was going to be a green community. And then he saw that this land in Tennessee was heavily forested. So his idea then well we're going to take this, all this, these woods, all this wood in the woods, and we’re going to turn that into a biochar uh product that we could sell and profit from that. And then they took it another step farther in terms of doing system sales. So they were going to sell the actual systems to make biochar. And that's then when things started really getting crazy because they started talking about turning trash into cash. And how they were going to sell these systems to every community in the United States and how communities would now turn their trash into cash and turn even consumer waste into biochar.

[00:10:58] Bob: Okay, but, but yeah, wait a minute. So what was biochar?

[00:11:02] Robert Livermore: So biochar is a product. You can buy it in any hardware store. And it's basically wood that through tremendous heat and pressure, they turn into charcoal. And that's, that's what it is. And it has other commercial uses. If you can refine, you know the, the biochar to a certain level, it can be used in various other applications, various, various other scientific applications. So biochar, if you could produce a high enough quality, it definitely has a market out there for it. The problem with Troy and Mantria was that they had not perfected their techniques to develop biochar. He didn't sell it as, hey, listen, we have this great idea. You know, we're still in the development stage, you know, we would like some investment money so we can turn this into reality, and that's where the fraud was. The fraud was selling this as a done deal when it was just an idea.

[00:11:55] Bob: It did seem like this was also the, the green wave time, when everything, everyone was, was investing in green the way we all invested in dot com 10 years earlier. Uh, and that, that had a, a role to play in the excitement around the product, right?

[00:12:09] Robert Livermore: You're absolutely right, and a lot of the, the victims in the case, they certainly invested because they were being promised fantastic returns. But a lot of the victims also invested in Mantria and really believed in Mantria, because they thought they were going to help create a greener world, a better world for everybody to live in. And so a lot of the, the victims were not only financially invested in Mantria, but they were emotionally invested as well.

[00:12:37] Bob: In theory, widespread use of biochar could improve soil, reduce the need for fertilizer and water, and it comes with a whole host of other earth-friendly benefits. Investors put their heart into the biochar idea, and then put their money into it. Many even put in money they don't have.

[00:12:57] You know, McKelvy really targeted people on an emotional level.

[00:13:01] Bob: That's another federal prosecutor, Sarah Wolfe.

[00:13:05] Sarah Wolfe: He was just a powerhouse of a salesman. Just really a smooth talker.

[00:13:11] Bob: And he is able to talk potential investors into getting in way over their heads. Here's consumer attorney, Patrick Howard.

[00:13:20] Patrick Howard: He was the, the bandleader with trumpeting people, I mean telling people in the audience, "Go out, open up a credit card." I mean this is back in the day, you know 2010, you know, "There's 0% interest or 1% interest. Open up a credit card, take the money off the credit card, $20,000 line that you get, write me the check for the $20,000. Pay the minimum payment on the credit card, and you know what you're going to get back, you'll get 6, 7% back from this investment. You can pay that 1% interest and and make money every day." And I mean he was that guy.

[00:13:55] Bob: And he likes to brag about being that guy. With McKelvy's sales skills, Mantria takes off like a rocket ship eventually pulling in more than $50 million from excited investors. And that money, well it's going out just as fast as it's coming in. The company has a knack for calling attention to itself. On a rap song by Ice Block released at the time, Mantria executives star in the video.

[00:14:22] (CLIP) This is Ice Block, and all we do is ball, One thousand, two thousand, three. Four thousand, five thousand more. We counting paper galore, we toss it all on the floor.

[00:14:33] Bob: But all this attention while attracting new investors also attracts scrutiny form the Securities & Exchange Commission.

[00:14:41] Sarah Wolfe: Part of the investigation was, there was an undercover who went to one of these Speed of Wealth seminars and recorded the seminar. And you just, you can just feel the excitement in the room from these recordings. I mean he's just a really gifted salesman, and he would get these audiences in there, and people just were rapt, rapt with attention for him. And you know, it's interesting because he sounds like a really confident and business savvy guy, but when you really break down what he's saying, it's, it's all fluff. Like there's no substance to it.

[00:15:20] Bob: It doesn't take long before SEC investigators figure out that Mantria doesn't really have a product to sell. The Ponzi is about to collapse, and investors are on the verge of losing all their money. But when the SEC first comes sniffing around, McKelvy and the others try to paint the government as the criminal. And it works for a while.

[00:15:43] Patrick Howard: You know, especially in this type of environment, and I, I hesitate to use the word cult, but the way that this whole thing was put together by the schemers, it was almost like a cult. They would meet in Las Vegas, they would meet, you know, all around the country. There were videos that were taken of the seminars that they put together, and they literally just whipped people into a frenzy about this idea. And so when the SEC first came in, the reaction of the people who were actually the victims of the scheme was to go against the SEC and say, you know, you don’t know what you're talking about. These guys are on the up and up, you know, the, this is going to be a great technology and we're going to make lots of money, and you should just go away... to the SEC.

[00:16:32] Robert Livermore: That is a common technique, uh, among criminal defendants is to turn the government into the bad guys. And throughout my, you know 20+ year career, I've seen that on countless occasions where criminal defendants who are charged or under investigation make the government out to be the bad guy, and to say that well, if the government had, or the SEC or the government hadn't come, hadn't come in and shut Mantria down, you guys would all be fabulously wealthy. And in this particular instance here, that's simply not the case. It was a Ponzi scheme. They were, they were losing money hand over fist, and, and they would have continued doing that if the SEC had not stepped in and shut them down.

[00:17:09] Bob: In November 2009, only a few months after Troy Wragg shared the stage with the world leaders, the SEC shuts down Mantria and freezes all company assets. The company claimed to be producing 25 tons of biochar per day. It really wasn't making any and hadn't closed a single sale. "Mantria's environmental initiatives have not generated any significant cash, and any returns paid to investors have been funded almost exclusively from other investors’ contribution," the SEC says. But as investigators begin looking for the $54 million that investors had given Wayde McKelvy and his band of Ponzi criminals, they quickly find there's nothing left. Company bank accounts are basically empty. People who invested their whole life savings but took cash advances from credit cards, who mortgaged their homes won't get anything back. Everything is gone.

[00:18:14] Patrick Howard: I was in my office, I looked down at my phone and I had a phone call from a 303-area code which I would later learn was Colorado.

[00:18:25] Bob: That's how Patrick Howard gets involved in the case.

[00:18:29] Patrick Howard: And a, a gentleman by the name of Dwight Stone left me a voicemail explaining to me that he was an investor in this thing called Mantria, which was based in Bala Cynwyd, which is right outside Philadelphia, where my office is located, and that, you know, the Securities & Exchange Commission had shut it down and lots of people lost lots of money, and he asked me to call him back. And I did just that. We were heading into Labor Day. The weather was nice, and I just remember getting ready, I think I told Dwight that I was, you know, heading out for a long weekend and that, you know, I would look at it and get back to him.

[00:19:06] Bob: Mantria victims are scrambling to find some way to get at least some of their money back. They need a lawyer, badly. But finding one isn't easy.

[00:19:16] Patrick Howard: They had shopped the case to a number of plaintiff's law firms in Pennsylvania. No one would take the case. And I was the first person to say, I'll do it.

[00:19:24] Bob: the case is going to be complicated and most important, for all anyone knows, there is no pile of money to go after. It seems hopeless. Patrick's partner needs a lot of coaxing to take the case.

[00:19:37] Patrick Howard: I sent him the complaint, and he said, "You sure about this one?" And I said, "Look, at least, you know, our people are on the right side of this," meaning the investors, and so he said, "All right, let's do it."

[00:19:48] Bob: But when you got this first call from Dwight, you had never heard of things like biochar, right?

[00:19:52] Patrick Howard: Yes, no.

[00:19:54] Bob: Okay, so, so how did, how did they explain to you what they thought the investment was?

[00:19:59] Patrick Howard: They had gotten, you know an award from the Clinton Foundation them for being a, you know, the, the latest and best new green energy company, and so being in the Philadelphia area, it was, you know, once they started talking about Mantria, I mean you know we just immediately started googling and reading everything we possibly could...

[00:20:19] Bob: Very quickly it becomes apparent how much this case means to victims.

[00:20:24] Patrick Howard: You know, I just, I felt for these people, you know I just, it was awful. One of them, one of the families, an elderly couple, happened to be a neighbor of mine. And so I went and met with them. And I sat at their kitchen table, and, and you know their children had largely disowned them because they were so angry with them. And they were just the sweetest people, and you know tears in their eyes when I talked to them about their children, about what they lost. And I, I don't even think that they could say out loud at that meeting how much they actually lost. I think they were so embarrassed. The husband had, had retired, and he had had to go back to work, to, to in order to pay their, I think they were renting the home they were living in.

[00:21:09] Bob: So Patrick is bound and determined to find some way of getting back these investors some money. But the money is all gone.

[00:21:20] Bob: So what, I think roughly my numbers are right, but ultimately these guys collected about $50 million, right?

[00:21:27] Patrick Howard: Correct.

[00:21:28] Bob: Um, a, a third of which was Peter paying Paul. Um, but something around $35 million was lit on fire and just all gone, right?

[00:21:37] Patrick Howard: Yes.

[00:21:38] Bob: So, Patrick starts looking everywhere for money.

[00:21:42] Patrick Howard: I would actually go to where like the SEC confiscated like all the documents, the computers, everything, and they just put them in a storage unit in a small town called Roxborough. And so, I would literally drive out to Roxborough and unlock the storage unit and just sit on the floor and just go through the documents, whatever was there, and you know take what I wanted that I thought would benefit the case.

[00:22:07] Bob: And for an idea, he looks to the most famous Ponzi scheme of all.

[00:22:14] Patrick Howard: As a result, of the Bernie Madoff debacle, there was a lot of third parties. And when I say third parties, I mean banks, lawyers, accountants, people that we refer to as the gatekeepers, who had found themselves on the receiving end of lawsuits as a result of the Madoff Ponzi scheme. And so you know with that in the, kind of in my head, we went online and pulled down transcripts of hearings that had occurred in Colorado, and we started immediately just peeling through them to see who or what may have surrounded this Ponzi scheme. And so, I started digging, you know, what law firm did they hire? Well they hired a law firm in Philadelphia who did all of their securities oversight, right, and then what accountants did they hire? And you know they hired an accounting firm in Philadelphia, who, you know, who was supposed to have performed some sort of general oversight of the books, but then when we got started looking at the accounting documents, I mean then you start to see the real, you know, oh my God, this was totally a fraud because all of the financial statements that they issued on behalf of Mantria made clear that they were unaudited, that they were not forensic in nature, and that you know basically it was a complete disclaimer on behalf of the accountants saying, hey, we asked for certain information, they didn't give it to us, buyer beware. But you know but that was part of a document that might have been 150 pages, and that was just a single page amongst all of those, so...

[00:23:51] Bob: Patrick can't recover any money from Mantria, but he can go after the deep pockets of firms that vouched for Mantria. And ultimately, he is able to get some relief for victims, about $5 million in a settlement with one of them. Still a fraction of what investors had put in.

[00:24:08] Bob: Doing some rough math in my head here, we're talking about at best like 20 cents on the dollar for your victims?

[00:24:14] Patrick Howard: Yes. Yes.

[00:24:16] Bob: 20 cents on the dollar. He gives the news to his neighbors.

[00:24:20] Patrick Howard: That's a tough pill to swallow. It wasn't, it wasn't going to get them back to where they were. And I knew that I needed to start pretty early saying, you know, this is, this is a high-risk endeavor. We could lose at any turn, and so getting something out of it you know it, it will be a win.

[00:24:40] Bob: So Mantria is shut down in 2009, and five years later in 2014, investors get back pennies on the dollar after a long, drawn-out legal fight. But what about Wayde McKelvy and Troy Wragg? They are still free. McKelvy, now divorced, is still somehow finding money to spend on his nonstop party life in Colorado. For a while, Patrick wonders why he wasn't bumping into Department of Justice lawyers during his investigation. But eventually he figures McKelvy will never face justice until...

[00:25:14] Patrick Howard: Years later, I get a phone call sitting in my office one day, it's the FBI in Philadelphia, and they asked me for my accounting. And so, and so we gave them, again, years later we gave them everything we had with respect to, you know what we had uncovered factually and then all of our accounting work. It was years later, and I was, I was shocked at the phone call to be honest with you. If the case, the case was finalized in August of 2014, I want, I want to say at least 2017, 2016? Somewhere in that range, I mean you know to the point where I didn't even think that the statute of limitations was viable for the criminal prosecution.

[00:25:55] Bob: Actually that statute of limitations clock is indeed ticking, loudly when Patrick gets that call. It was initiated by Robert Livermore, the Assistant US Attorney, who is suddenly in a hurry.

[00:26:08] Robert Livermore: My criminal chief walked into my office and said that there was this $54 million Ponzi scheme, and that the statute of limitations was going to expire in three months, and I had to get it done in three months. And if you know anything about kind of federal criminal investigations, they don't take three months. These are generally yearlong investigations. So, so I had to really scramble very quickly to get an indictment together. There was a lot of complaining from the victims that no one had been, had been charged and it had taken years to get an indictment done. But that's something we were very sensitive to, and we wanted to make sure that the perpetrators of this egregious fraud were brought to justice.

[00:26:50] Bob: The indictments are filed just in the nick of time, and as Rob begins to put his case together with fellow DOJ lawyer Sarah Wolfe, the stories he hears about McKelvy are disturbing.

[00:27:02] Robert Livermore: I mean his lifestyle was, was really crazy. One of the things the SEC required Wayde to do was they required him to go through his bank account records and explain where all the money went. Because he got, you know, of the $54 million, my recollection is it was about $6 million went into Wayde McKelvy's pocket. And at the time of the SEC injunction, the SEC wanted to get that money back to return it to the investors, and Wayde claims that he had spent it all. And so they made him go through all of his expenses. And I mean the amount of partying, it was obscene how he spent the victims' money. And when you and I had spent a lot of time interviewing the victims, and they would tell stories about how they worked, this was their life savings. This is what they had spent their life working to achieve, and how he just squandered the money so callously. It was uh, it was very impactful when we presented that evidence to the jury, I can tell you that.

[00:28:13] Bob: So people had to deal with the reality that, that they had maybe taken a loan out on their home. They had spent every penny they had, and this guy wasted it.

[00:28:21] Robert Livermore: Absolutely. And not only a loan on their home, they took out credit card loans. They took out loans of, of every fashion as he taught them to do. And so for many of the victims, this fraud scheme still hangs over their head because they haven't paid off those debts. They haven't paid off those credit card debts, they have, not only do they not have any money to their name, they have no, they have gigantic losses, loans they haven't paid back. Their credit history is, is terrible. It's really left a long lasting impact to many, many of the victims. You know one of the problems is is that people were bringing their friends and family into this. And so that really impacted those relationships, and people got divorced as a result of this fraud.

[00:29:09] Bob: The evidence, much of it sitting in the original SEC file from 2009, is overwhelming. Troy Wragg pleads guilty in 2017. Amanda Knorr, another executive pleads guilty too, but McKelvy, he wants a trial. He wants to take his shot before a jury. Prosecutor, Sarah Wolfe, kind of expects that.

[00:29:32] Sarah Wolfe: No, I was not surprised that he went to trial. This man is a professional manipulator. And he managed to manipulate 300 people in this scheme and who knows how many dozens of others before this scheme. So I'm sure he thought he could do the same in the courtroom.

[00:29:47] Bob: When the trial begins, Sarah and Rob both have a reaction to McKelvy right away.

[00:29:53] Sarah Wolfe: I recall having the distinct impression that he looked like a friend's dad, you know, just a normal looking guy. How could this possibly be a criminal? I mean he definitely has an air of confidence about him. I mean I'd go so far as to say arrogance. But I, I didn't find that, you know, I found it offensive, but I could see how people could be persuaded by him because of the way he talks with such an air of confidence.

[00:30:19] Bob: Even though the evidence is overwhelming, as the trial begins, there is cause for concern because a star witness for the prosecution is now unavailable.

[00:30:31] Sarah Wolfe: One of the problems that we, we faced here is you know we had initially planned to have Troy Wragg as a cooperating witness, or a, a cooperating defendant who would testify at the trial, and be able to tell us exactly what he and Wayde had been talking about behind the scenes because we didn't have that written down for us. But in the months leading up to the trial, Troy was engaging in a wholly separate fraud, so we had to cut him off. And you know when you have a sort of star witness who's going to give you the inside scoop on, on what was going on between him and the defendant, and then all of a sudden, he gets pulled out of the trial for good reason, you know, I was a little bit nervous about that. And in contrast, we had the other defendant who had pled guilty, Amanda Knorr, she did testify, but she didn't have the same close relationship with McKelvy that Troy had. So that was something that the defense harped on quite a bit that, you know, this guy who could really tell all isn't here, and you know, it's always easier for a defendant to point at the empty chair and say it's all his fault.

[00:31:37] Bob: During the trial, McKelvy tries to argue that he had no idea what was really going on inside Mantria.

[00:31:43] Robert Livermore: His trial strategy was to blame everything on Troy and to say that he, you know, Troy, Troy lied to him too. And that Wayde honestly believed what Troy was telling him, and that was, and that in many ways Wayde really, I mean his testimony was that he was a victim too.

[00:32:01] Bob: But the prosecution's ace in the hole is McKelvy's own words said to SEC investigators almost a decade earlier.

[00:32:10] Robert Livermore: One of the most critical pieces of evidence for us was Wayde's testimony, his depositions that he gave to the SEC. The SEC attorneys in the case were, were really, really good, and uh especially the first deposition, Wayde kind of walked in there pretty nonchalantly, and the SEC attorneys were very, very persistent in getting answers out of him, and he gave very incriminating, very devastating answers. I mean he admitted that, that there was basically, that Mantria wasn't making any money contrary to his representations. That they really didn't have any assets contrary to his representations to investors. So it was that dichotomy between what Wayde was telling investors and what his sworn testimony was to the SEC, and this is before Mantria collapsed. This is while it was still operating. Wayde was telling them what exactly he knew about what was going on. That wasn't something that he could walk away from during trial.

[00:33:11] Bob: Still, there are tense moments during the trial.

[00:33:15] Robert Livermore: The victim stood up and cursed out Wayde and like, I mean I, I thought he was ready to go over across the room and start like a fistfight with him at one point. That's when the kind of the fireworks happened was during trial. He cursed out Wayde in front of the jury and stood up and Sarah, what do you remember about that?

[00:33:34] Sarah Wolfe: Yeah, this was the individual who knew Wayde from you know his, the kids went to school together. And there was some, yes there was cursing, and it got very heated, and the judge asked everybody to calm down and take a break. I think there was, you know, some comments about, you know, his daughter driving, Wayde's daughter driving some really nice car, and his kids were, you know, not able to do that. He couldn’t even pay for their college now because of, of the fraud. It was, it was highly emotional.

[00:34:04] Bob: And so was the closing argument. Because it's not enough to show the jury that investors were hurt by Mantria. Prosecutors have to prove McKelvy's state of mind.

[00:34:14] Sarah Wolfe: In the closing, the, the entire thing was basically going back and forth between what he was telling investors, what he's telling the SEC. And you could just see, it was night and day, the promises that he's, you know making to investors about the state of Mantria and the finances and how much money's coming in and how successful this all is and then he tells the SEC nothing is worth anything until it comes to fruition. I mean that that was absolutely critical because it showed his state of mind which is, in a fraud case, the hardest part to prove. You have to prove a defendant's intent to defraud, and that is very difficult to get inside the head of a defendant, but when you have something as golden as the defendant's own words in sworn testimony to the SEC, yeah, that's pretty, pretty amazing.

[00:35:02] Bob: The jury returns a guilty verdict very quickly. McKelvy doesn't react at all, Sarah says. After all, he's still free on bail, and he remains free from the October 2018 conviction until his sentencing hearing in August of 2021. But that's when things finally change. More than a decade after the Mantria Ponzi crumbled, McKelvy is sentenced to 18 years in federal prison.

[00:35:29] Robert Livermore: That's that's when he actually had the reaction, 'cause it was just going back to the timeline, so the, the SEC action was in November of 2009. We indicted the case in September of 2015, so during that whole time, he was out on bail, and so until the sentencing hearing when the judge remanded him, and sent him to 18 years in federal prison, I don't think it really hit him what was really going to happen. And when he went to the sentencing hearing and a judge remanded him, and sent him away for 18 years, that's, that's when he had the reaction, not so much when the jury came back. I don't think he was so surprised by the jury's verdict.

[00:36:09] Bob: But he still, his reality was, I'm out on bail and I can still live whatever crazy life I'm living, and it, the reality doesn't sit in until someone leads you away in handcuffs, right.

[00:36:17] Robert Livermore: Correct.

[00:36:18] Sarah Wolfe: That's why for me, it was actually really shocking when Judge Slomsky at the sentencing finally put not only a period on the end of this case, but you know, remanded McKelvy that you're going away now. You've had enough time out. I, I was shocked because of all the leniency he had given the defendant up until that point. Now all of a sudden it all came to an end.

[00:36:39] Bob: So he went right from the sentencing to prison. There was no go home and settle your affairs like there often is.

[00:36:44] Sarah Wolfe: There was not. And his attorney made that pitch, and I recall the judge saying, "No, you've had enough time."

[00:36:51] Bob: Now that the legal book on Mantria has finally been closed, there's a lot to learn from this story. Mantria's Ponzi scheme sounded attractive for many reasons, but perhaps the biggest, it traded on the news of the time.

[00:37:06] Bob: There's just something about when the buzz is in the air, everybody does, doesn't want to get left behind, right?

[00:37:12] Robert Livermore: Exactly and, and a lot of people don't fully understand it. They don't under, really understand what it's about. But they just know that it's the new hot thing and they want to get involved in it, and they, they think that they can make money by doing so. Mantria marketed itself as the next, as the next Microsoft, the next Apple, and they really told people that this was going to be, you know, a multibillion-dollar company in the very near future. And those things do happen. I mean Apple, Microsoft, Facebook; those companies do exist, and so people, people believed it when they, when they told them that Mantria's going to be the next, you know multibillion dollar company.

[00:37:50] Sarah Wolfe: Yes, and I think that's one of the things that was so appealing about this, is this investment in this green energy concept was purportedly backed up by real estate. So it's something, you know, that you could see and touch and that collateralized aspect of this is what made people convinced that it was risk-free.

[00:38:11] Bob: One of the crimes committed by Mantria involved with the kind of investors the owners targeted. Consumer Attorney Patrick Howard says, and here's a good term for anyone saving for retirement to know: accredited investor.

[00:38:25] Patrick Howard: You know, not to be over--, you know, boring or technical, but you know the, the SEC has what's called accredited investor qualification, which means that you have enough money that you can invest in these sorts of high risk offerings, and you're not going to wind up on the street, right. So you're, what's called an accredited investor meaning I can put a million dollars into this, and if the million dollars goes up in smoke, you know, it's not going to impact my life. Well, in order to sell this type of security through these people, they had to be accredited investors and Mantria had to qualify them as accredited investors. Well none of that happened. And so all these people bought into these high-risk you know which, which ultimately turned out to be a Ponzi scheme, but in the, even in the first instance, these high-risk investment vehicles when they didn't have the, the wherewithal to be investing in them.

[00:39:21] Bob: I, I don't think it's a bad idea for people to ponder themselves whether they could call themselves an accredited investor. That's a good way to look at it, right?

[00:39:28] Patrick Howard: Yes. yeah, absolutely. Absolutely.

[00:39:31] Bob: Accredit yourself.

[00:39:32] Patrick Howard: Yes.

[00:39:33] Bob: And that leads to the advice that Patrick wants listeners to know.

[00:39:38] Patrick Howard: Yeah, I think, you know, if people who are listening to this if it makes the cut, that would be my only advice to, to people out there, is that if you can't afford to lose that money, all of it, and continue on with your lifestyle as is, you shouldn't be making that investment.

[00:39:54] Bob: There's one other element that strikes me about this, uh, at the time, in addition to the recession that that had just happened, also in people's brains was green everything was everywhere, right?

[00:40:06] Patrick Howard: Yes.

[00:40:06] Bob: And so I think you didn't want to miss out on a cool green investment feels just a little bit like crypto to me.

[00:40:12] Patrick Howard: Yep. And you know it's funny you bring that up because those are the cases I'm getting hit with now, right? I don't dabble in that world, and for all the reasons that I've given you, uh, I, I wouldn't invest in crypto. And again, I, I just go back to the, if it feels too good to be true, it probably is. You know I; I know everyone has dreams of being on the ground floor of Microsoft or you know, your buddy who turns out to be Steve Jobs one day asks you to borrow, you know asks you to invest $30,000; the next thing you know you have a, a fleet of private jets. You know, maybe I'm a skeptic or a cynic, but I just, if you can't afford to give your buddy your $30,000 to, to help him with his investment, you shouldn't do it.

[00:40:54] Bob: Sarah wants listeners to still believe in the justice system.

[00:41:00] Sarah Wolfe: I guess I would just like to end by, by saying that even though it took a long time to bring these people to justice, the wheels turn slowly, but they get there, and, and I would hope that your listeners would also, you know, just have faith that even though it might take a while, there are people who are dedicated to this cause and who are working night and day and uh Rob is certainly one of them. I mean he; it was, it was brought to Rob's desk for an indictment in 30, or 3 months because there was faith that Rob could do it. And there's plenty more people like Rob in this office and around the country that are working hard to bring these criminals to justice. So, have faith.

[00:41:40] Bob: And Rob, well he's worried about the next Mantria case that will end up on his desk.

[00:41:46] Robert Livermore: Well I think one of the other things about that, that made Mantria so successful is that during this time period, the, the stock market was doing terrible, the economy was doing bad, the real estate market was doing bad. And so people didn't know where to put their money. They wanted something that was going to have good, positive returns, and they weren't getting that from traditional investments. And so a lot of people were at that point were willing to take risks and to try something new in the hopes that they could see some, some positive returns, especially people who were either retirement age or near retirement age, and they're looking at their nest egg and it's not what they hoped it would be. You know looking forward today, I mean nobody knows what the stock market's going to do in the next year or two years, certainly the returns of the S&P 500 in the past year or so have been, have been pretty poor in comparison to previous years. So it's during times like these where sort of traditional investments have not been performing so well, it really provides a ripe ground for fraudsters to approach people and come up with some, you know package a, a new way of trying to defraud them. I guarantee you somebody right now is coming up with a Ponzi scheme involving some type of artificial intelligence product. And they're going to be out there pitching that to people and say, look, you can make you know 484% on your money investing in this, you know artificial intelligence investment, and this is going to change the world and you're going to be fabulously wealthy. And the same pitch that Mantria made in terms of green energy, someone's are going to be out there doing it on artificial intelligence, as they're doing it with crypto right now.

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[00:43:39] Bob: If you have been targeted by a scam or fraud, you are not alone. Call the AARP Fraud Watch Network Helpline at 877-908-3360. Their trained fraud specialists can provide you with free support and guidance on what to do next. Our email address at The Perfect Scam is theperfectscampodcast@aarp.org. And we want to hear from you. If you've been the victim of a scam or you know someone who has, and you'd like us to tell their story, write to us, or just send us some feedback. That address again is: theperfectscampodcast@aarp.org. Thank you to our team of scambusters; Associate Producer, Annalea Embree; Researcher, Sarah Binney; Executive Producer, Julie Getz; and our Audio Engineer and Sound Designer, Julio Gonzalez. Be sure to find us on Apple Podcasts, Spotify, or wherever you listen to podcasts. For AARP's The Perfect Scam, I'm Bob Sullivan.

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